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Wealth Management Mistakes, And How To Avoid Them

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# Saturday, 16 June 2007
Saturday, 16 June 2007 13:59:57 (GMT Daylight Time, UTC+01:00) ( General Life | Whole Life )

Wealth Management Mistakes, And How To Avoid Them

We all dream of that day when we retire, and can finally relax and spend our time pursuing our long-awaited plans. With this is mind, it is important to understand your finances, and avoid making potential mistakes that can impact on your financial future. By taking control early on, you can ensure that your retirement years will be well provided for. This list of ten common financial planning mistakes will help you better prepare for your future.

Do not leave your assets unprotected. Your savings, investments, etc. can easily be wiped out due to illness, death, fire, or accident. As you accumulate assets, you need to ensure that you have adequate insurance that reflects your needs. Death or prolonged illness can quickly deplete your savings, leaving you in a financial crisis. Make sure you re-evaluate your coverage on a regular basis, and make sure that your policies reflect your current needs.

Do not mismanage your cash flow. Realistically devise a budget, and stick to it. It can be easy at times with a steady cash flow to spend more and save less. You need to remember that in the future, you will not be receiving a paycheck, and need to save in accordance. Impulse purchases of large items, such as cars, vacations, etc. can easily deplete your savings, thereby affecting your financial future. It may also be beneficial to consult a financial planner in order to devise your budget and investments. A financial planner can also help you invest your assets in such a manner that will minimize your taxes. During your years of employment, it is also wise to carry disability insurance, thereby protecting your assets in case of an accident.

Do not mismanage your debt. While debt is a normal part of life, too much debt can be financially detrimental. Your debt should not exceed your liquid assets, which is the combined total of your cash accounts, brokerage accounts and the cash surrender value of your life insurance policies. If your debt does exceed your liquid assets, it is advisable to try and consolidate your debt at a lower interest rate. Mortgages offer the advantage of a tax break on the interest, which will also help you.

Do not ignore your finances. Financial mistakes can easily be made simply by neglect. Commit time on a regular basis to review your financial status and investments. By simply paying attention, you can avoid any errors and rectify and mistakes.

Do not misjudge your risk tolerance when investing. The stock market can be highly profitable, but it also carries a higher level of risk. Once capital is generated, it must be protected and preserved. Realistically evaluate how much risk you can safely assume when investing in the stock market. Rebalance your portfolio periodically. If you are not comfortable with your current status of stocks and bonds, you may wish to move into a more secure investment practice. In the event that you do suffer a loss with your stocks, try to minimize the loss when you do your taxes.

Do not spend unexpected windfalls of money foolishly.  If you come into unexpected money, such as an inheritance, lottery winning or stock options, resist the urge to go on a spending spree. Consult with a professional on the taxation issues concerning the money, and plan accordingly in order to maintain as much of the money as possible.

Do not fail to maximize retirement plan benefits. The majority of participants do not put the majority contribution allowable into their company retirement plan. By doing so, you will have further savings for when you retire, as well as the tax benefits. Depending on where you work, you may also be able to take advantage of "nonqualified plans", which allow you to defer paying the taxes until a future date. It is important to remember that if the company you work for goes bankrupt, nonqualified assets are not protected. If you are planning on rolling over your retirement plan to an IRA, make sure you thoroughly understand all the taxation issues, in order to prevent taxation penalties.

Do not neglect to realistically plan for how much you will be spending once you retire.  You need to assess whether your current financial plan will adequately provide for the type of retirement you envision. In order to do this, you need to carefully assess on how much money will be coming in, how much you plan on spending, and whether your assets reflect this. By determining how much you plan on spending early on, you can then make changes if necessary in your financial strategy.

Do not forget to plan your estate. Failure to plan your estate ahead of time can lead to financial problems or tax problems later on. It can also leave your loved ones without financial security. Make sure that your estate includes consideration for potential disability as well as death. Include the name of the person who you wish to have power of attorney. It is wise to make sure that your plan is current, and make the necessary changes, such as beneficiaries, immediately.

Do not leave your heir(s) unprepared. Discuss with your family what your intentions are regarding their inheritance. If you are planning on leaving significant sums of money to your heirs, you may wish to teach them how to be financially responsible. When dealing with children, or young adults, setting up trusts may be a wise decision. You may want to set up trusts in installments, where they will receive certain sums at certain ages. By clearly stating your intentions orally and in writing, you can also avoid family fights later on.

By having a well thought out financial plan, you can avoid having to worry about money when you retire. Remember, the earlier you start planning for retirement, the less of a burden it will be later on. Consult with your insurance broker about your coverage, and whether it is sufficient for your plans and needs.

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